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Introduction

In addition to the legislative rules that expenses be incurred because of an employee’s role, the level of expense should be reasonable otherwise it may give rise to a taxable benefit where the employer reimburses the employee. This is not a statutory test. Instead it arises because when considering whether an expense is allowable, it must be incurred wholly, exclusively and necessarily for the performance of the employee’s duties. Excessive reimbursement of particularly lavish expenditure can therefore be challenged on the basis that it is not necessary, or that the reimbursement is in part to reward the employee.

If the amount reimbursed by the employer is excessive then the payment is taxable on the employee.

When reviewing the taxable status of expenses, HMRC’s guidance regularly refers to the term ‘reasonable’. It is usually only possible to say whether an expense is excessive or unreasonable on a case by case basis, with the application of common sense.

Since 2009, HMRC has published guidance rates for what it considers to be reasonable levels of subsistence payments for travelling